Highmark/WPAHS deal may be health care harbinger

So far, the Highmark drama has been in the western part of the state, with the Pittsburgh-based insurer's proposed purchase of West Penn Allegheny Health System.

But Central Pennsylvania observers aren't watching just because it's a good show, or even because Highmark insures a lot of people here.

The deal matters, they say, because it's increasingly looking as if close relationships between providers and payers, and alternative reimbursement models, are the future face of health care.

The spotlight thus far has been on Pittsburgh and the amply illustrated difficulties of balancing the interests of the payer, the provider and the people. But while enmeshed in those negotiations with WPAHS, Highmark has also been pursuing its vision — a system in which price and volume of services are based not on provider market power but on value delivered — via other avenues.

"It looks like Highmark's plan is sort of to create a giant health system in the western part of the state," said health care attorney John Greenleaf III of the Harrisburg-based firm McNees Wallace & Nurick LLC. "Whether they move east eventually, I don't know."

Central Pennsylvania's health systems do have a sporadic history of discussing consolidation, Greenleaf said. However, the power dynamic is different here than in Pittsburgh.

If WPAHS fails, he said, "UPMC is really left as a main provider out there" — and for competition, "It's usually beneficial to have at least two big systems."

Matthew Kirk, president of The Benecon Group Inc. in Manheim Township, said he sees increasing costs and the Patient Protection and Affordable Care Act causing tectonic shifts in the health care landscape. He expects the results will be more deals like Highmark's, whether they be purchases or partnerships or affiliations.

"Integrated delivery systems are the future of controlling costs in health care," Kirk said. "Without the close relationship between the payment and provision of health care, the sharing of information will be difficult."

But, Kirk said, as the WPAHS deal is illustrating, assembling a comprehensive and coordinated network of providers can be complicated and expensive.

"What they're undertaking is not only important for their entities, it's important for the citizenry of Pennsylvania to control cost and continue to have access," Kirk said.

Developments

The WPAHS debt has been both the primary impetus and the main sticking point for the Highmark deal since the beginning. Things came to a head this fall, when Highmark's urging WPAHS to consider bankruptcy prompted WPAHS to announce that it was seeking other partner options for its future.

Highmark went to court to prevent that from happening, and WPAHS countersued for damages. On Nov. 9, Allegheny Court of Common Pleas Judge Christine Ward ruled in favor of Highmark, saying its actions hadn't breached the agreement and therefore WPAHS is not permitted to seek other suitors while the agreement stands.

The ruling also noted that, although the Pennsylvania Insurance Department has not conditioned approval of the deal on WPAHS filing for bankruptcy, it has "expressed its concern that Highmark not send 'good money after bad.'"

According to a recently released financial statement, in June WPAHS had total assets of $1.3 billion and total liabilities of $1.5 billion. It posted a $37.8 million loss for the year.

Highmark and WPAHS issued a joint statement last week, saying their senior leaders met and had "a very productive session."

"Highmark and WPAHS continue to believe that an affiliation between them is in the best interests of both organizations and of the greater community," the statement said. "The parties agreed to work diligently in the days ahead to finalize their efforts and to work together to gain PID approval."

The statement noted that the parties met with WPAHS bondholders. It also said Highmark and WPAHS "agreed to focus on assisting and supporting the physician retention and recruitment with WPAHS, and to improving ongoing communications and coordinated actions prior to any regulatory approval."